March 24, 2023

Keeping Media and Government Accountable.

Kelly administration wants $15 million to bail out failed incentive program

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The Kelly administration is asking for approximately $15 million a year to prop up an incentive program that has shown little sign of being successful.

According to the Wichita Eagle, the Department of Commerce has asked the Kansas State Legislature to allocate the money to cover the cost of food sales tax revenues lost by STAR Bonds projects. The Legislature did so for one year last year, but the bill would make the change permanent.

The Kansas House voted 72-49 last month to send a bill to the Senate which would allocate the money the administration says is needed because roughly 15% of the funding for the program comes from the food sales taxes, which are to be eliminated by 2025. 

What are STAR bonds?

Sales Tax and Revenue (STAR) Bonds are a tool intended to help Kansas municipalities finance the development of major commercial, entertainment, and tourism projects and — theoretically — paid off through increased sales tax revenue generated by the development.

The idea is that the bonds will be paid off by revenue from outside the region or city.

However, as the Eagle noted — and the Sentinel has repeatedly reported — that is simply not what has happened.

According to the Eagle, Greg LeRoy, the executive director of the incentive watchdog group Good Jobs First, told the Eagle that eliminating grocery taxes has exposed a fundamental problem with the STAR Bonds program — that the state’s claim that the program is creating regional tourism destinations simply hasn’t worked as intended. 

“It’s bailing out the projects, and it’s kind of bailing out that argument,” LeRoy said in the Eagle story. “It says that the tourism model really wasn’t working.”

Commerce displays a startling lack of oversight

Moreover, the program the Kelly Administration wishes to bail out has been rife with a lack of transparency and oversight by the very agency tasked to keep it on track.

Two requests filed in 2019 by the Sentinel under the Kansas Open Record Act (KORA) with the Kansas Department of Commerce for studies related to the efficacy of state incentive programs and economic development have been rebuffed by the department. 

In late 2022, the Americans for Prosperity Foundation-Kansas, which filed a series of KORA requests similar to the Sentinel’s, found that the Department of Commerce was allowing attorneys for developers to write draft bond approval letters and — in at least one case — the chief counsel for Commerce was unaware of the details of the project for which he was drafting an approval letter.

In fact, AFPF-K has filed an open records complaint against the department because they have yet to receive all of the records it requested.

Indeed, as the Sentinel previously reported, a 2021 study by the Kansas Legislative Division of Post Audit found that only three of the 16 STAR bond attractions they reviewed met Commerce’s tourism-related program goals.

A 2020 analysis of STAR Bond projects in Wichita, commissioned by the Sentinel’s parent company, Kansas Policy Institute, found that they mostly shifted economic activity and jobs to other parts of the city rather than creating incremental activity.

Efficacy of the incentive program is impossible to determine

Neither AFPF nor the Sentinel has received any substantive answers. While Commerce did not provide or comment on the McKinsey & Company study referenced in the Sentinel story,  it did provide a STAR Bond study authored by the Docking Institute of Public Affairs at Fort Hays State University. The study’s lead author, Dr. Brett Zollinger, told Commerce in an e-mail that the “project has been somewhat more challenging than we envisioned!”

While the study examines the economic impact before and after the STAR Bond projects, it doesn’t determine if the project would have been developed with or without the bonds.

In point of fact, the Eagle also found late last year that many projects — including some STAR Bond projects have largely been a giveaway to local developers.

In 2018 a rebuilt and privatized Stryker Soccer Complex near K-96 and Greenwich more-or-less destroyed the nonprofit Sedgwick County Soccer Association, “based at South Lakes Park — which once served 3,000 community youth — in favor of the for-profit operator that benefits from $23 million in new soccer fields funded by Sales Tax and Revenue, or STAR, bonds.”

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